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Life Insurance Riders

Children’s Protection Rider (CPR)

by Glenn on November 10, 2007

There are four common riders available on life insurance policies. In no particular order they are Accidental Death Benefit, Guaranteed Insurability Option, Disability Waiver of Premium, and Children’s Protection Rider (CPR). Out of all of those, CPR is the only product I routinely recommend.

In most cases putting life insurance on children doesn’t make financial sense. Paycheque earners have a need to financially protect their families in the event of their death. Not so with children. There are any number of sales techniques used to promote the sale of individual policies on children, but that’s what they boil down to – sales techniques.

Now, there’s one instance where I do recommend insurance on children. And that’s when it covers a small need and is dirt cheap. CPR covers both of those well.

Here’s the way most CPR riders work. For a small premium – typically about $50 a year for $10,000 – the insurance company will cover all of your children whether that be 1 child or 30. And they’ll cover them generally from the ages of 15 days old to somewhere between 18 and 25; that varies a bit by company.

In addition once the children are old enough not to be covered under CPR any more, some companies will let them purchase their own individual policy without evidence of insurability. So if one of your children became uninsurable in the future but was covered under your CPR rider at some point they could still have their own albeit small life insurance policy.

Here’s the neat part though – the insurer will cover all of your kids for the one single premium. The same $50 (or so) covers all your kids regardless of how many you have. Have more? In most cases they’re automatically covered once they’re 15 days old without any additional cost.

So while I rarely if ever think insurance on children is a good idea, with all those great features and in conjunction with a very low cost, I do recommend the purchase of a CPR rider for most people.

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Disability Waiver of Premium

by Glenn on November 10, 2007

Disability Waiver of Premium is another rider available on life insurance policies (for other common riders see Accidental Death Benefit).

Disability waiver or premium (WP) is intended to waive your premiums should you become disabled. More specifically this rider will pay your life insurance premiums after generally 90 days, should you become disabled per the definition of disabled in the life insurance policy.

Now that initially sounds like a good idea. You become disabled, you still have your life insurance. And in fact the idea that you want to keep your life insurance should you become disabled IS a good idea. But this rider isn’t the way to pay for it.

Rather than buying disability insurance piecemeal on every little debt, a wise person should have proper disability insurance to protect a percentage of their entire income. For example, should you become disabled a good disability policy might pay 2/3’s of your regular income. That income can then be used to pay for your insurance policy as you would normally. And pay your mortgage. And make the car payments. And maybe buy some groceries. In other words, a proper disability plan should allow you to continue to meet your obligations and not just a small subset of your obligations.

Waiver of premium riders on life insurance policies, while they do work, are a bandaid solution to potential disability. Proper disability coverage should be taken out to cover your income, not just a small portion of your monthly outlay.

In short, like the accidental death benefit rider, disability waiver of premium rider is another option that I don’t normally recommend.

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Accidental Death Life Insurance

by Glenn on November 10, 2007

Most life insurance policies in Canada have a number of options available. These options are called ‘riders’ in the industry. One of the most prevalent riders is Accidental Death.

The Accidental Death rider pays out an additional death benefit should you die as the result of an accident. That may sound nice, but it’s important to remember that this rider costs money to buy; it’s not free.

I don’t recommend Accidental Death life insurance and here’s why. If done properly, you should know how much life insurance you need. If you die as the result of an accident do you all of a sudden need more life insurance? I don’t know of a single instance where more life insurance is needed because of ‘how’ you die. If you’re buying mortgage life insurance you don’t need more life insurance because you died as the result of an accident. If you’re planning estate needs, those needs don’t change because you died as the result of an accident.

In short, if you need additional life insurance, buy it. If you don’t need additional life insurance, don’t spend your money. The amount of insurance you need doesn’t change as a result of how you died.

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